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Canada’s Housing, Mortgage and Credit Markets Department of Finance October 2008 Department of Finance October 2008.

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Presentation on theme: "Canada’s Housing, Mortgage and Credit Markets Department of Finance October 2008 Department of Finance October 2008."— Presentation transcript:

1 Canada’s Housing, Mortgage and Credit Markets Department of Finance October 2008 Department of Finance October 2008

2 2 Strong housing price growth in Canada followed a prolonged period of weakness leading to much lower levels than in the U.S. by the mid 2000s. Source: Canadian Real Estate Association; S&P, Fiserv, and MacroMarkets LLC. Existing Home Prices Index = 100 in 1989Q1 U.S. S&P/Case-Shiller home price index Canada Q191Q193Q195Q197Q199Q101Q103Q105Q107Q1

3 3 IMF: Divergence from price growth suggested by fundamentals ( ) Source: IMF Fall 2008 World Economic Outlook. The IMF definition of fundamental factors includes: disposable income growth per capita, short- and long-term interest rates, credit growth, equity price growth and growth in the working population. Price growth that is not explained by these factors can be interpreted as a measure of over valuation and, therefore, the susceptibility of a correction in house prices. According to the IMF, house price growth in Canada has been fully explained by fundamental factors. Per cent AustriaGermany Finland Korea Canada PortugalU.S. New ZealandItaly Greece Netherlands DenmarkJapan BelgiumSpain Sweden France NorwayAustralia U.K. Ireland

4 4 Mortgage debt relative to the value of housing has declined in Canada since unlike the U.S. Ratio of Mortgages to the Value of Housing Ratio Canada U.S. 2008Q2: Q2: 0.31 Source: Statistics Canada; U.S. Federal Reserve Q12003Q12005Q12007Q1

5 5 The share of mortgages in arrears in Canada remains low, suggesting that Canadian households are better able to service their mortgages. Percent of Mortgages in 90-day Arrears Canada U.S. Per cent Source: Canadian Bankers’ Association; Bloomberg 08Q2: 4.5% 08Q2: 0.3% Q12004Q12006Q12008Q1

6 Average Tier 1 Capital Ratios of Major Banks AVG CDN Banks AVG U.S. Banks AVG U.K. Banks AVG Euro Banks Tier 1 Capital Ratio

7 7 Canadian Interest Rate Spreads Source: Bloomberg Banks' Cost of Funds vs. Government of Canada Oct-00May-01Dec-01Jul-02Mar-03Oct-03May-04Dec-04Aug-05Mar-06Oct-06May-07Dec-07Aug-08 basis points Short term (3-month Bankers' Acceptance vs. T-Bill) Medium term (Merrill Lynch Canadian Financial Index vs. GOC 5-year)


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